Robin Raina always had the magic touch, or so it seemed until Wednesday, when the disclosure of a U.S. criminal probe of his software company’s accounting practices blew up a proposed $820 million deal with Goldman Sachs Group Inc. to take the firm private.

Prior to that disclosure by Ebix Inc., which sent its stock down 44 percent, Raina looked like he could do no wrong. He saved a dying company at age 32, re-booted it as an e-commerce site for the insurance industry, and propelled it through a decade of rapid growth. He established the firm as a fixture on the annual lists of fastest-growing tech stocks tracked by Fortune magazine and Forbes.

Raina transformed himself along the way. Born to a well-to-do family in northern India, he amassed a paper fortune of about $100 million and settled into a life of American opulence in a six-bedroom mansion in suburban Atlanta. He created a multimillion-dollar charity to build homes for slum dwellers in India, and to help polish his image, financed two documentary films about his philanthropic pursuits.

Yet the public attention he so carefully courted eventually became a liability for Ebix, which had $199 million in revenue last year. Besieged by short-sellers and hounded by regulatory probes and lawsuits—including one filed last month by Microsoft Corp.—Raina announced plans to take Ebix private this summer in an $820 million leveraged buyout funded by Goldman Sachs.

Intensify Scrutiny

But now short-sellers may be the least of his problems, as more details about Ebix’s accounting are revealed in court filings, and the Securities and Exchange Commission and Justice Department intensify their scrutiny of the Atlanta-based firm.

The $20 per share Goldman deal, had it gone through, would have yielded a $40 million windfall for Raina and left him with a 29 percent stake in the new company. The buyout would also have given him the last laugh in an increasingly nasty war with his critics, punishing short-sellers who were betting that Ebix shares were worth less than $10, and allowing him to use Goldman Sachs’s reputation as the ultimate endorsement of Ebix’s earnings.

The proposed LBO, announced May 1, provided for a 45-day “go-shop” period, during which any other prospective buyer would be allowed to beat New York-based Goldman Sachs’s offer.

Rather than other suitors, however, the only significant party to make inquiries during that period was the U.S. Attorney in Atlanta, who sent a letter to the company on June 14 informing Raina “that it had opened an investigation into allegations of intentional misconduct,” according to a company statement, which linked the probe to accounting fraud claims.

‘Naturally Disappointed’

“We want to thank Goldman Sachs for their interest in acquiring Ebix and we are naturally disappointed that we could not complete a transaction at this time,” Raina said in the statement. “The company’s balance sheet remains strong and we believe the company is well positioned for future growth.”

Goldman Sachs said that it was “unable to move forward” with the deal because of “this recent development.” The Atlanta U.S. Attorney’s office declined comment.

In 2011, after a 10-year stretch of impressive growth, skepticism about Ebix’s earnings emerged in the form of an anonymous blog posting on Seeking Alpha, suggesting that the company was a “house of cards.”

The posting sparked a one-day selloff, leading to a 24 percent decline in Ebix’s share price, and knocking the company’s market cap from $1.2 billion to $878 million. The company denied the allegations.

In the ensuing months, Ebix was sued by a former executive, who claimed that accounting irregularities had cost him and two former colleagues a $1.5 million bonus, and by a class-action law firm, which used the Internet allegations as the basis for a shareholder suit claiming fraud on the part of Raina and his team. Ebix rejected the claims, seeking to have them dismissed.

SEC Probe

Even as the company kept posting increases in revenues and earnings—driven in part by a series of acquisitions—Ebix failed in its attempts last year to get the lawsuits dismissed and the SEC began a probe of the company’s accounting practices.

The pressure mounted in February of this year when another short seller, Daniel Yu of Gotham City Research, published his own attack on Ebix’s financial statements, also on Seeking Alpha. In response, Raina held a conference call with an analyst in which he tried to refute some of the Gotham City claims, while avoiding any discussion of the SEC investigation.

A tennis buff and obsessive ping-pong player, Raina served up the Goldman Sachs buyout plan artfully, announcing the $20- per-share offer a week before disclosing to investors that his company was already being probed by the SEC and the Internal Revenue Service, facts that might have sent his company’s share price south had it not been for the Goldman Sachs deal. The IRS probe relates to Ebix’s use of off-shore subsidiaries in low-tax countries, two people familiar with the matter said last month. Ebix has said that it’s cooperating with the IRS, and that it’s regularly reviewed and audited by domestic and foreign tax authorities.

More Details

Now, as the company tries to find an alternative buyer, according to its statement, Raina will probably face more questions about his company’s accounting and compliance practices. New details may emerge in court filings as he prepares to be questioned in two lawsuits that are headed to trial.

The SEC probe comes while the commission has begun to focus on the type of gray areas that have been essential to Ebix’s success, namely the company’s use of an accounting policy that allows it to report relatively high book earnings while minimizing taxable income.

Under Raina’s leadership, no regulatory allegations have been filed against the company, and none of Ebix’s four auditors during the past decade has issued anything other than a clean opinion of its financials.

Questions Abound

Still, questions abound about the quality of Ebix’s earnings, according to accounting experts such as Joseph Carcello, co-founder of the Corporate Governance Center at the University of Tennessee.

Carcello pointed to the company’s use of four auditors over the past decade, along with Ebix’s reliance on earnings from foreign subsidiaries, which haven’t been audited by its current firm, Cherry Bekaert, according to securities filings.

“You have multiple auditor changes, the heavy percentage of operations overseas, the lack of filings overseas,” said Carcello in a phone interview, prior to the termination of the Goldman Sachs deal. “You start putting it all together and, although we don’t have evidence of anything fraudulent, what we do have is a lot of questions.”

Marc Cohodes, a short-seller who helped expose accounting frauds at Lernout & Hauspie, Aremisoft and Computer Associates, questioned the quality of Ebix’s earnings and the motivations behind the deal.

“In my experience uncovering and dealing with some of the great software frauds in the past, Ebix could rise to that level,” Cohodes said.

Cohodes said he’d “never seen a company being investigated or sued on so many fronts” while it was a takeover target.

Sales Skills

From an early age, Raina’s sales skills set him apart from his peers. After graduating with an industrial engineering degree from Thapar University in Punjab in 1990, he joined a company that distributed Dell Inc. computer products in India. First in Mumbai, then in New Delhi, he became one of the company’s top salesmen.

His next stops were Singapore and the U.S. There he was recruited in 1997 to help turn around Delphi Information Systems, an also-ran in the business-to-business software industry. Delphi’s sales had dropped from $53 million to $28 million over the previous two years.

As head of sales and marketing, Raina immersed himself in other parts of the company.

‘Very Aggressive’

“Robin was very aggressive, open to change and open to new business models,” said Bill Baumel, a board member at the time. “He was ready to be unleashed.”

By 1999, Raina was pushing an entirely new platform for Delphi, a Web portal called Ebix. In September of that year, the board named Raina, who had just turned 32, chief executive officer of the publicly traded company.

Raina initially drew on the expertise of a board of directors who had deep experience in management, insurance and technology. Even as he learned from the directors, many of whom were older, he clashed with them on a few issues, including compensation, several of them said.

“There were a lot of battles,” recalled Dennis Drislane, who was recruited to the Ebix board in 2000. “He makes a decision and acts. The old board wanted to see a five-year plan, or a one-year plan. That was not Robin.”

When Raina talked about acquisitions, board member Doug Chisholm would press him to project growth from acquisitions and existing business in any given year. Raina balked.

‘Very Astute’

“He had it all in his mind,” said Chisholm, who had come to Ebix from Hewlett Packard Co. “Robin was very astute at assessing distressed properties and assets, and making an offer to people who wanted out.”

As early as 2002, after the turnaround had taken hold but before the company was flush with cash, Raina pushed the idea of outsourcing the company’s software production to India. Several directors wanted to wait until the company’s finances were stronger.

Raina dug in on the India initiative and set up shop outside of New Delhi. To showcase Ebix’s new offices, Raina flew several directors to India for a meeting.

Drislane said his only issue with the subsidiary was a lack of transparency.

“That’s where things got a little murky,” he recalled. “There was a lot of stuff in India that we didn’t have visibility on.” Still, he regarded the India project as a success, he said. Jonathan Keehner, a spokesman for Ebix, declined to comment in a written statement.

Net Income

Through internal growth and acquisitions, Raina transformed Ebix from a loss of $11 million on sales of $12 million in 2000 to $4.3 million in net income on sales of $24 million in 2005.

He strengthened profit margins by running a lean operation, keeping a tight grip on expenses and cutting staff at acquired companies. He also took newly acquired software assets and combined them with operations in India and Singapore, where Ebix benefits from low tax rates

“Robin was ahead of the curve,” Drislane said of the outsourcing initiative. “He cut costs and increased productivity, and he did it on his own. There were no consultants, no partners. He can be arrogant and difficult to deal with, but he is smart.”

By 2006, Raina had replaced his old board with a new set of directors, four of whom are based in Europe.

“There were a lot of battles, and that was one reason he wanted a new board,” Drislane said. When Chisholm’s term expired in 2004, he recalled, it was clear Raina didn’t want him to stand for re-election. Baumel, Raina’s biggest champion, said he stepped down because of the time and travel required of an Ebix director. Ebix spokesman Keehner declined to comment.

Foreign Subsidiaries

Along with the foreign representation on the board came the addition of subsidiaries around the world, not just in countries where Ebix did business. They included Sweden and Mauritius, where holding companies were registered to serve as nodes in the company’s complex web of financial transactions.

Even as Ebix’s accounting issues have grown more complex, the company has migrated toward smaller, less expensive auditing firms in the U.S. KPMG LLP, which had been Delphi’s auditor, reported potential shortcomings in Ebix’s internal controls in 2003.

In 2004, as part of a cost-cutting move, Ebix replaced the Big Four accounting firm with BDO LLP. BDO also identified deficiencies “relating to the company’s internal control over financial reporting,” according to a securities filing.

‘Inadequate Documentation’

The deficiencies related “to the lack of accounting knowledge and leadership in foreign locations, inadequate documentation for certain accounting transactions, insufficient analysis and review of domestic account reconciliations, lack of documentation of development costs and related agreements, and the lack of documentation to support the company’s income tax provisions and related accounts,” according to a 2005 securities filing.

Not a problem, Raina said. He and his chief financial officer at the time, Richard Baum, reviewed the matter and concluded that “the company’s internal control over financial reporting is effective,” according to the filing.

The willingness of the board’s audit committee to allow Raina to ratify the company’s internal controls is alarming, said Lynn Turner, former chief accountant of the SEC.

“This is not an accident waiting to happen—it’s an accident in motion,” Turner said.

In April 2007, Ebix replaced BDO with an Atlanta-based accounting firm, Habif, Arogeti & Wynne.

Acquisition Spurt

During the next 20 months, Raina spent more than $90 million to acquire five companies, including an Australian software provider, lifting Ebix’s revenue to $75 million. After this buying spree, Habif, Arogeti & Wynne resigned as auditor in December 2008. The firm declined to immediately comment.

The timing of the resignation seems unusual, according to Carcello, since it occurred before the audit engagement was completed, and “in the teeth of the worst recession in many years.”

The new auditor, Cherry Bekaert, signed off on Ebix’s financial statements for 2008.

In 2009 the buying spree continued, as Raina spent $62.5 million on acquisitions, and Ebix’s revenue grew to $97.7 million. Even as Ebix increased in size, Raina maintained tight control over accounting-related decisions, several former Ebix executives said.

Unusual Structure

Each month, Raina would meet with controller Sean Donaghy and Darren Joseph, corporate vice president of finance and human resources, to go over the company’s revenue and determine how it should be allocated, said two former executives, who asked not to be named. Absent from this group was Robert Kerris, the company’s chief financial offer, who relied on the trio’s decisions when compiling the company’s financial disclosures, said the former executives, who requested anonymity because the matter wasn’t public.

The structure is unusual, said Carcello.

“Whenever you see a company where the CEO takes an active, ongoing interest in how transactions are accounted for, that’s a huge red flag,” he said. “Chief executives need to run the business, they don’t need to run the accounting.”

Ebix spokesman Keehner didn’t directly address Raina’s role in reviewing the company’s revenue allocation. He said in his statement that “The CFO is an integral part of this process, and the primary contact with Cherry Bekaert.”

“The members of the audit committee reviewed, and the chairman of the committee discussed with management and Cherry Bekaert LLP” financial information “contained in each quarterly and annual earnings release prior to the release of such information to the public,” Keehner said.

More Revenues

As Ebix began to allocate more revenue to offshore subsidiaries, Cherry Bekaert had to rely more on the company’s foreign financial statements.

Several overseas subsidiaries have fallen behind in filing audited numbers. Ebix Singapore, which accounted for $25.2 million of Ebix’s $78 million in pretax income last year, according to SEC filings, still hasn’t filed locally audited figures for 2011 or 2012.

Ebix India, which recorded $35.7 million of the company’s pretax income last year, hasn’t filed audited figures for 2012. EIH Holdings, the company’s Swedish subsidiary, is being liquidated by Swedish regulators for lack of timely filings. Yet, according to SEC filings approved by Cherry Bekaert, the Swedish unit earned $7 million of the company’s $78 million in pre-tax income last year.

As for Ebix Asia Holdings Ltd., the company’s subsidiary in Mauritius, an island nation in Indian Ocean, the only filing available online is a registration. No earnings or revenues have been attributed to the unit since its inception in 2008.

Even if Ebix finds an alternative buyer, some accounting issues will remain. As part of a lawsuit filed by a former executive in 2011, and scheduled to go to trial next year, allegations of accounting irregularities at the company have been made in court papers.

The complaint was filed in an Ohio federal court by the founder of Peak Performance Solutions, which Ebix acquired in 2009. Peak’s founder, Steven Isaac, and two partners say that Ebix owes them a $1.5 million “earnout” as part of the sale.

Different Calculations

Filings in the lawsuit allege that the company’s controller and CFO provided different calculations of Peak’s revenues in the year after the acquisition. Peak’s founders also reported that an Ebix check sent to them bounced. Raina, in a 2011 interview, blamed the bounced checks on a mistake at Bank of America Corp.

In a court filing earlier this month, Peak’s lawyers disclosed that Cherry Bekaert had notified Ebix in March 2010 that “it had found significant deficiencies in internal controls and the company’s accounting operations,” including errors in preliminary financial statements, schedules and disclosures, insufficient analysis and lack of documentation to support revenue recognition.

Ebix spokesman Keehner said the accounting firm had notified the company’s audit committee of its findings. He declined further comment on the matter.

Two Subpoenas

SEC investigators, who have issued two subpoenas to Ebix, according to the company’s latest quarterly statement, have also expressed interest in payouts that have been promised if acquired firms reach revenue targets, according to a person who has discussed the issue with the agency.

Investigators are examining the possibility that Raina’s preference for embedding an earnout in the acquisition price could create a “cookie jar” that the company can later to use to boost income, according to the person, who requested anonymity because the matter is confidential.

For example, when Ebix announced the Peak acquisition in 2009, it set aside $8 million for the purchase, which consisted of a $6.5 million cash payment, and an accrual of $1.5 million from Ebix’s cash reserves to be paid out when Peak hit its revenue targets over a 12-month period.

Microsoft Lawsuit

In 2011, after concluding that Peak failed to achieve those targets—a determination being contested by Peak in its lawsuit—Ebix management reversed the $1.5 million accrual, which flowed directly to its bottom line. It didn’t adjust the goodwill associated with the original purchase downward. Thus, Ebix was able to convert $1.5 million from its cash reserve in 2009 into $1.5 million in net income for 2010.

The due diligence team at Goldman Sachs had an opportunity to review the claims made in the Peak lawsuit, as well as in a class-action suit filed two years ago. The Microsoft suit, however, was filed after the announcement of the LBO.

Microsoft claimed Ebix breached its licensing contract and ignored the company’s demand for an audit to determine the extent of overuse, according to the complaint. Ebix said it was using unlicensed copies of the company’s software products while putting off Microsoft’s attempt to conduct an independent audit, according to the filing. Keehner declined to comment on the suit.

Charity Work

Raina is eager to talk about his work in India and seems to revel in the publicity. Through his charity, the Robin Raina Foundation, he has financed the construction of more than 1,700 homes for slum dwellers in New Delhi.

In various Indian television interviews, which Raina has posted to YouTube Inc.’s website, he is referred to as “Santa,” the “kindest millionaire,” “an angel for poor people” and an “example of patriotism.”

Two years ago, in response to questions about Ebix’s accounting practices, Raina passed along an e-mail account of a tour through New Delhi’s slums with the family of one of his shareholders.

“Robin was treated like a God,” wrote Kathryn Lebovitz, whose father, Steven Lebovitz of G&L Realty, owned Ebix stock. “A group of at least 100 people followed us around chanting his name and waving and smiling at all of us.”

In 2009, the foundation produced a documentary celebrating Raina’s work with the underprivileged, called “Mere Apney,” or “My own people.”


Two years later, the foundation financed another documentary, “Dilli,” which celebrated Raina’s work with the underprivileged. It was shot and directed by Black Ticket Films.

At Ebix, Raina is less involved in day-to-day operations than he was a decade ago, as evidenced by his focus on the ‘Dilli’ documentary. Raina’s primary areas of interest are identifying acquisition targets and cutting costs, according to people who have worked for him.

Rolf Herter, an Ebix director, said in a statement provided by Keehner that “Robin remains as committed to Ebix today as when he joined the company.”

Last year, after former Delphi board member Larry Gerdes sold his own Atlanta-based company, he received a call from Raina. In the course of congratulating Gerdes, Raina broached the idea of selling Ebix.

“Robin didn’t feel like the public markets were valuing his company appropriately,” Gerdes said. “He was frustrated with managing a public entity.”

Grown Weary

Raina had also grown weary of defending himself against short-sellers, who have amassed a large negative position in the stock, said David Collins of Catalyst Global, who served as Ebix’s outside investor-relations spokesman from 2004 to 2006.

The Goldman Sachs deal would have given him a way out.

“The sale of company was Robin’s only way to get his life back,” Collins said in an interview prior to the announcement of the deal’s demise. “I can relate to a guy who’s come to America as a land of opportunity, and created huge wealth for anyone willing to invest in him, and he’s publicly reviled and his charitable activities are questioned in a purely personal way.”

The shorts saw a dash to the exits.

“Who’s pregnant here?” asked short-seller Cohodes, who has clashed with Goldman Sachs in the past, before the deal was scrapped. “What was the rush to do this deal? Why wouldn’t anyone want the regulatory process, the legal process to work itself through?”

Andrea Raphael, a spokeswoman for Goldman Sachs, said in an e-mailed statement that the bank “did comprehensive due diligence over a period of months working closely with our outside advisors, but the DOJ investigation launched subsequent to our signing was a new fact.”


Raina communicates information about Ebix with shareholders on conference calls following quarterly earnings statements, and at “investor day” meetings. As for his philanthropic efforts, he uses his Facebook Inc. website account to expound on his beliefs.

In a Facebook posting three years ago, Raina mused on the importance of charity, and how his battle to eliminate poverty from the planet by 2050 helped him keep his business accomplishments in perspective.

“As I reflected more on what I saw and tried to think about my own life, I realized that even though I had built a so-called ‘successful business’ it did not guarantee happiness to me irrespective of who I was or how much I had,” he wrote. “I thought I had built security, I thought I had built success. But in reality what I had built was an illusion.”

(With assistance from Andrea Tan in Singapore, Anita Kumar in Princeton, New Jersey, Niklas Magnusson in Stockholm and Michael Moore in New York. Editors: Winnie O’Kelley, Patrick Oster, David E. Rovella)